UK financial stability under risk from climate change, says Bank of England

The UK faces an imminent risk to financial stability from climate change, as well as threats from physical damage caused by extreme weather like flooding, which could lead to an insurance crisis, the Bank of England (BoE) warned in its annual climate-related disclosure . “Recent analysis points to increasing evidence that climate risks to firms and financial stability are becoming more proximate,” the report said. “In a severe but plausible scenario, if investors were to rapidly reprice financial assets, including government debt, corporate bonds and equities, to reflect climate risks, the resulting move in asset prices could be comparable to the moves seen in recent market stress episodes.” The BoE also noted that households, businesses, banks, and governments could face reduced access to insurance as physical climate risks intensify, a reason to invest in resilience to these risks such as a programme to help households to protect their homes from flooding . “These findings underline the need for individual financial firms to further strengthen their capabilities to price and manage climate risks, particularly using climate scenario analysis,” it said. BoE chief operating officer Sarah John said the bank was anchoring an awareness of climate risk deeper into its operations. “We have further integrated climate considerations across our functions – strengthening supervisory expectations for firms’ management of climate risks, deepening our assessment of macroeconomic and monetary policy impacts, and enhancing our analysis of financial stability risks,” she said. The UK’s Prudential Regulation Authority (PRA) has significantly tightened climate risk management rules for banks and insurers, requiring them to embed climate considerations into core risk frameworks and board-level decision making. The BoE said some PRA-supervised firms have strengthened their climate risk capabilities, but progress is uneven, and it said more work is required for all firms to meet expectations. The BoE has shifted its attention away from climate and nature risk since Andrew Bailey took over as governor, senior staff members who resigned from working on those issues at the central bank, told the Financial Times . Under former governor Mark Carney, the BoE was considered a world leader in addressing climate change. However, the UK slipped down the rankings in the latest edition of the Green Central Banking Scorecard . The Labour government has reinstated climate change as an important objective of central bank policy but it is sending mixed messages on the centrality of the goal as it seeks to revive growth in the UK economy, experts say. The post UK financial stability under risk from climate change, says Bank of England appeared first on Green Central Banking .